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China Netcom Group Corp (Hong Kong), China's second largest fixed line telephone company, swung into the black with its first results since its initial public offering (IPO) as success in broadband and international telecommunications services offset slowing growth in its other businesses.
The Hong Kong and New York listed company marked a turnaround of net profit to 9.25 million yuan (US$1.11 million) last year, against the net loss of 11.1 billion yuan (US$1.33 million) in 2003.
The result surpassed the company's promised net profit of 9.153 billion yuan (US$1.10 billion) made to investors at the time of the IPO, but fell below the 9.7 billion yuan (US$1.16 billion) profit estimate of Paris BNP.
Broadband and Internet services were the strongest driver of growth in 2004 and its subscribers grew by 145.3 per cent to 6.22 million as a result of low Internet penetration, proliferation of content and applications.
"The company is poised to transform into a broadband communications and multimedia service provider," Vice-Chairman and Chief Executive Officer Edward Tian Sunning said yesterday.
"We will achieve this by becoming the leader in the fast growing broadband market and by expanding our market share in domestic and regional corporate data services."
Revenues from the company's unique pan-Asian network grew by a remarkable 91.7 per cent to 2.64 billion yuan (US$318 million) in 2004.
The strong growth in broadband services and international telecommunications services offset the decline in its cores business as PSTN (public switched telephone networks) usage dropped by 5.8 per cent as a result of mobile substitution and a 25.4 per cent decline in revenues from leased lines.
The market is focusing on Beijing's expected move on industry restructuring later this year in a bid to ease competition and pave the way for next-generation mobile services.
Kim Eng Securities analyst Edward Fung described the result as "fair, nothing exciting."
"Everybody's looking for the restructuring story but nobody can tell you a concrete story. That's what we are looking for," he was quoted as saying by Reuters.
In order to expand market share, the company is considering acquiring four provincial networks in Heilongjiang, Shanxi, Jilin and Inner Mongolia, which are currently held by its parent.
The management of the company revealed that China Netcom Group intends to inject all of its assets into China Netcom, and the network assets in the four places are the first to get the injection.
The company currently dominates the market in the northern service region, with a 94.5 per cent share in local telephony and a 95.8 per cent share in broadband at the end of 2004, compared with 89.2 per cent in 2003.
"China Netcom Group has entered into a memorandum of understanding with PCCW regarding co-operation in the six cities and provinces in southern China," Chairman Zhang Chunjiang said. "The two parties are studying the concrete proposals and are expected to come up with plans soon."
This move convinces Bertrand Chui, an analyst at ICEA Securities Ltd, to project that Netcom's growth will stay at the high single digit level in the next few years.
Investment bank CSFB agrees, estimating a 9 per cent growth in the next three years with the target price for the stock at HK$15.6(US$1.8).
(China Daily April 7, 2005)
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